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Reserve Bank of India (RBI) Deputy Governor Viral Acharya on Wednesday highlighted that as far as the present condition is concerned, the banking system liquidity is moving towards neutrality.

Addressing a press conference here post the rollout of RBI's Bi-Monthly Policy drafted by the sic-member Monetary Policy Committee (MPC), Acharya observed that liquidity conditions continue to normalise, adding that open market operations will be considered if the need to inject liquidity arises.

"Liquidity conditions continued to normalise gradually during the year. Overhang of liquidity surplus in banking system forced withdrawal of specific bank notes in Nov 2016, and touched peak of close to Rs. 7.96 trillion at the year's beginning. This, however, has come down now. We will consider open market operations if liquidity needs to be injected," he said.

Acharya further stated that from January 6 to November 24 this year, currency expanded by 7.6 trillion in the economy. He also said excessive surplus liquidity was due to the overhang of demonetisation from November last year, coupled with foreign exchange operations.

However, the RBI has adopted an approach involving a mix of open market operations and issue of securities. Variable reverse repo rates will used to absorb short term surplus.

In the coming year, Acharya said liquidity conditions would be marginally in surplus, adding that system liquidity may reach neutrality in mid-2018.

"The RBI will manage evolving liquidity conditions for handling short-term fluctuation and open market operations for durable basis," said Acharya.

The MPC in a 5: 1 majority decided to keep the key policy repo rate unchanged at six percent, and reverse repo rate at 5.75 percent. The cash reserve ratio too has been left unchanged at four percent.

The projection of real GVA (gross value added) growth for 2017-18 of the October resolution at 6.7 percent has been retained.

"On the whole, inflation is estimated in the range 4.3-4.7 per cent in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced," the apex bank said in its policy statement.

The MPC estimates growth in the third and fourth quarter of this fiscal year to be seven and 7.8 percent respectively.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)